Cancellation and Settlement

Cancellation

Private loans are very difficult to cancel. Private loans cancellations are not required by law and private loan borrowers do not have the same range of cancellation options as federal student loans. Although limited, cancellations for federal loans are required by law. Private student loan cancellations are another story. Unless the private lender made a promise about a cancellation (or discharge) program, private lenders MAY cancel loans, but they usually don’t have to. You may also want to consider filing for bankruptcy relief. Bankruptcy is a difficult, but not way to cancel private student loans.

What type of loan do I have?

You can ask your private lender for relief, but these lenders are not required by law to help you. Some private lenders are now offering disability and death discharges. Sallie Mae, for example, announced a total and permanent disability program for Smart Option borrowers as well as forgiveness of unpaid balances if a primary borrower dies. The discharge form will likely look something like this, but you should check with Sallie Mae to make sure you have the most current form.

Wells Fargo announced a similar program in December 2010. (The announcement is no longer on-line, but FastWeb and others reported on it). Some lenders will automatically allow a private loan discharge if the borrower obtained a federal disability discharge. Lenders will also in some cases use the criteria for federal loan discharges. In other cases, the lenders use criteria that are completely different than the federal programs.

Read your loan contract very carefully to learn about your private loan’s particular terms, conditions, benefits, rates, fees, and penalties. Private lenders do have to honor any promises they make about terms and benefits. Some private lenders offer a cancellation program for some loan products, but not others. Some will offer to cancel only a portion of a loan in certain circumstances.

You may also be eligible for private loan relief from recent state and federal enforcement actions. This relief is mainly for students who borrowed loans made by for-profit schools, such as Corinthian school Genesis loans. The relief is generally limited.

Settlement

Private student loan settlements are difficult to get, but are possible in some cases. There are no specific laws or regulations requiring private lenders to offer settlements. The policies and programs vary considerably by lender.

Private lenders will offer settlements in some cases. However, the lenders generally require very large lump sums to settle debts even from borrowers with low incomes.

Do you have a complaint about a collection agency?

Most private lenders will not even discuss settlement or modification until the loan is in default or written off. At this point, the borrowers’ main point of contact is usually a collection agency. Interestingly, the collection agencies working on behalf of the lenders will often settle for smaller amounts than the originating lenders.

Tax Issues

As with some federal loan settlements, there may be tax consequences if you get a private student loan settlement. It is a good idea to consult a tax professional for more information.

In 2015, the Department of Treasury issued a ruling that discharges of federal student loan debts for Corinthian borrowers will not be considered taxable income. In July 2018, the Department of Treasury (I.R.S.) issued a ruling extending the 2015 relief for Corinthian federal student loan borrowers to Corinthian private student loan borrowers. (There are similar rulings for students who attended schools owned by ACI).

Quick Help

Please Note

Please understand that we do not provide legal advice about individual cases. This web site includes links to other resources for those who seek individualized legal advice or other help not offered here. This site is for people who already have student loans and want to know more about their options and rights.